Why Donald Trump should tame his love for tariffs

President Donald Trump loves tariffs, especially when he can unilaterally impose them as a dangling stick, hoping it might turn into a carrot for the target. And by the way, he is a ‘Samdarshi’—he does not discriminate between the friend and foe as long as he feels that it fits well in his MAGA (Make America Great Again) or the refined version MAWA (Make America Work Again) in the spirit of ‘America First’. This time round, while there may be some pragmatism in his other strategic approaches to geopolitics in trade, his preferred tool remains the imposition of universal or specialised tailor-made tariffs on countries that will enjoy his special affection.

As such, unilateralism has become the hallmark of US foreign policy since it became the hyperpower in the 1990s with the disintegration of the Soviet Union. It has cost the US significantly and strategically since it shook the very foundations of the so-called ‘rules-based order’ that it so assiduously crafted and so disingenuously undermined. This has eroded the US’ capability to enforce the same across geographies as other alternative models and architectures have begun to emerge and may eventually give a run to the double standards deployed by the West in its international discourse. Trump also has a disdain for the World Trade Organisation (WTO), the Paris Agreement/Climate Change, the UN, and its various tentacles and agencies unless they directly serve US’ core interests and act as an instrument of their foreign policy.

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In the run-up to Trump 2.0, the writing on the wall is pretty clear. He rightly or wrongly won’t allow his strategic rivals as well as functional friends the leeway to US markets for trade and technology until and unless he gets a better deal in return. Knowing too well the non-competitiveness of the US in mass manufacturing, China enjoys his special affection as he is threatening to impose 60 per cent or more tariffs on Chinese exports. India, he called the ‘Tariff King’ as he loves and likes Prime Minister Narendra Modi and has given several important positions to Americans of Indian origin in his new administration.

One cannot forget the ‘Harley Davidson Saga’ and the fact that he took India out of the GSP regime. Even the so-called ‘Free Trade Agreement’ talks may run into rough weather. Hence, some clever adjustment may be necessary, and more nuanced approaches and strategies will have to be devised while reciprocity will have to be invoked since protectionism is back in vogue by major countries. Hopefully Trump and his team will understand India’s strategic value in their scheme of things. Trade indeed is a two-way street.

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Forget about the far-off markets; his neighbours are being given special dispensation, especially Mexico and Canada, let alone NATO and the Europeans. A concerned Canadian PM, Justin Trudeau, did run to Trump’s Mar-a-Lago office to plead for some understanding, and the Mexican president had her own tribulations, especially due to the twinning of Mexican exports with the spate of immigrants to the US, against whom Trump wanted to build the famous wall.

Tariff wars can be disastrous. To Trudeau, he even quipped and offered Canada to become the 51st state of the United States if he can’t even afford to lose $100 billion in tariffs. The proposed 25 per cent tariffs on Canada and Mexico were linked to their alleged failure to control illegal immigration and drug trafficking into the United States. Trump on his Truth Social remarked that discussions were productive, reiterating, “I made it very clear that the United States will no longer sit idly by as our citizens become victims of the scourge of this drug epidemic, caused mainly by the drug cartels and fentanyl pouring in from China. We also spoke about many other important topics like energy, trade, and the Arctic. All are vital issues that I will be addressing on my first days back in the office and before."

Who does not love the greenback being the reserve and psychological global currency in general, which the US prints at will despite being one of the most indebted nations in the world, exceeding its own GDP? Post Russian aggression into Ukraine, the Biden administration cut Moscow out of the SWIFT mechanism and confiscated some $360 billion in Russian funds in the West. This weaponisation of financial instruments and unilateral sanctions had caused ripples in the western-dominated global financial architecture, making the countries and markets nervous, who rushed to look for alternatives and responses.

Russia responded by weaponising food, fuel, and fertiliser while diversifying their currency usage and trading in national currencies with major partners to the extent possible. As a result, more than 90 per cent of Sino-Russian trade is conducted in rubles and yuan. The UAE’s dirham has emerged as a major intermediate currency preferred by many partners. New mechanisms by China and Russia, like CIPPS and STFM/National Settlement Depository, respectively, for transfer and settlement are gaining traction. India has signed UPI agreements with over two dozen countries and developed its own SFMS (Structured Financial Messaging System). No wonder BRICS popularity has increased, especially among the Global South, as the lineup for membership attests.

BRICS has become a new butt for Trump’s fondness, as during the recent BRICS Summit in Kazan, Russia, a lot of talk on the BRICS currency and new alternate mechanisms became current due to larger geopolitical and geoeconomic challenges. He tweeted, “The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is OVER. We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty US dollar, or they will face 100 per cent tariffs and should expect to say goodbye to selling into the wonderful US economy. They can go find another sucker!”

There is no chance that the BRICS will replace the US dollar in international trade, and any country that tries should wave goodbye to America. No one is suckering up, and de-dollarisation is way beyond even if some diversified mechanisms are in the works and national currency transactions have increased. Putin himself at the Valdai Discussion mentioned that BRICS efforts were not aimed at or against the dollar, which remains an important global currency.

Recently at the Doha Forum, S. Jaishankar, Indian External Affairs Minister, also clarified that there is no proposal for BRICS currency and that India has never supported de-dollarisation. The US is India’s largest trading partner, and he added, “The US is our largest trade partner; we have no interest in weakening the dollar at all.” Former Reserve Bank of India (RBI) Governor Shaktikanta Das also confirmed that India hasn’t moved toward de-dollarisation. He , however, said that India’s focus is on de-risking domestic trade from geopolitical upheavals.

In any case, going forward, it should be useful for the Trump administration to review the structural issues and excessive dependence on unilateral and punitive approaches that run counter to his own objectives of Making America Great Again in the short and medium term. Hope lies in his efforts to defang the deep state.

The author is the former Indian Ambassador to Jordan, Libya and Malta and is currently a Distinguished Fellow with Vivekananda International Foundation. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.